To understand what a cryptocurrency is, we need to pause for a moment and understand what a currency is in general.
The “regular” currencies we know have one primary use: we use them to buy goods and services.
In the crypto world, technological power defines the value.
Cryptocurrencies (or “crypto” in a short form) are means of payment that can be exchanged online for goods and services.
Why is it called cryptocurrency? The meaning of the term “cryptographic” is “encrypted” – the means used to prevent coin theft, copying, and registration and execution of transactions are an essential part of the currency’s meaning.
Cryptocurrency works through the help of blockchain technology.
This technology enables extremely powerful and uncrackable encryption that creates a code known only to the user and maintains his complete anonymity.
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important points to know about cryptocurrencies
Crypto is a digital currency that does not belong to any country and is not subject to any economic authority.
The meaning of the name crypto is from the word cryptographic (encrypted).
Cryptocurrencies operate based on the blockchain network – a technology that aims to encrypt and provide complete anonymity.
The volatility in the prices of cryptocurrencies is considered to be exceptionally high, and therefore, trading in these currencies is common among traders around the world.
is investing in crypto a good idea
Yes and no. It depends on which cryptocurrency you want to invest in.
Buy small percentages of bitcoin every month until you have about 0.01 BTC. In fact, with 0.01 bitcoin, you could be rich in the future.
There are only 21 million bitcoins, and no more can be created.
If 3 billion people in the world wanted to have bitcoins in their wallets, they could have a maximum of 0.007 each (1 bitcoin is equal to 100 million satoshis)
Remember that many bitcoins have been lost over the years and will never be distributed equally.
Consider the institutions of the banks that have entered and are increasingly entering Bitcoin.
The continuous decrease in the purchasing power of fiat money (dollar, euro, etc.) inflation will lead more and more people to look for valid alternatives to protect their savings and safeguard themselves.
And bitcoin could be one of these solutions. It is also better than gold due to its characteristics.
Bitcoin is currently in the top 20 ranking of the world’s most capitalized assets. Above many multinational companies and banks.
In 2011, it was worth a few dollars. In 2020, it was less than 10,000 dollars. It went upto 40,000 in 2021.
it is currently worth 28,000 dollars as of the time of writing this article in October 2023. Of course, all investments are risky.
Nothing is safe. It is not certain that bitcoin will be successful and that its price rise will continue over time.
Unlike gold, which has existed for many years, Bitcoin is a young asset yet to be proven.
But among the many cryptocurrencies, bitcoin (the original one and not the various copies) is the least risky crypto investment.
Due to its characteristics, it has the most probability of price increase over time.
For this reason, starting with Bitcoin after having made your considerations and studies about it is recommended.
And as always, when investing, do so by only putting in what you can afford to lose without problems.
Is it worth investing in cryptocurrencies?
What is the magic secret of these new coins driving the world crazy?
Many say decentralized currencies (another name for cryptocurrencies) are pioneers of the future economy.
And for some investors, it is about taking part in what they see as a total revolution in the financial world and breaking the power of the central banks.
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Blockchain technology’s innovative encryption and data processing capabilities are very exciting, and many are enthusiastic about its possibilities.
The volatility of cryptocurrency prices is high, and it is possible to generate high profits (and losses) in a relatively short time.
Even if the cryptocurrency revolution or the vision they offer is complete nonsense, one thing is sure: money can be made from them.
You’ve probably heard of young guys who made millions because they bought a few bitcoins before the value skyrocketed.
Is it really a profitable investment channel? Many investors claim that cryptocurrencies are nothing more than speculation and not a real investment
(for example, Warren Buffett said he would not buy Bitcoin even at $25 ).
Why? The main reason for this is the fact that cryptocurrencies do not generate cash flow.
Well-managed companies generate cash flow, so buying their shares expresses confidence in their ability to generate real profit.
To make a profit in crypto, someone will have to pay more for a currency you paid less for.
Those who adopt this rationale see crypto investments as a pyramid scheme in which the last one stuck with the currency loses everything.
It is important to note that for a currency to be valid, it must demonstrate stability.
A currency traded in 2017 at $20,000 and its value dropped to $3,200 a year later, only to jump again to new highs, is a challenging currency to trust.
You have to understand how the cryptocurrency blockchain works before you can use it without having much worries.
how much to invest in crypto per month
Most industry experts agree that cryptocurrencies should make up at most 5% of your portfolio.
This is a quota “contained enough not to compromise the investor’s finances in periods of high volatility,
but also substantial enough to have a real positive impact on the portfolio in the event of a rise in cryptocurrency prices,”
says Bruno Ramos de Sousa, responsible for the global expansion of Hashdex, a company active in the management of crypto assets.
Other experts, including Aaron Samsonoff, strategy director and co-founder of the crypto investing company InvestDEFY, recommend reaching allocations of a maximum of 20%.
But to decide what percentage of your portfolio to allocate to cryptocurrencies, consider your risk tolerance and perspective first.
In addition to generating impressive returns over the long term, cryptocurrencies tend to have very high volatility.
In the case of the CFA Institute study, the data shows that the higher the allocation to Bitcoin, the greater the returns and volatility.
Between January 2014 and September 2020, the typical portfolio would have been worthless without Bitcoin producing a return of 6.26% compared to the traditional portfolio with a 2.5% allocation to Bitcoin,
which produced an annual return of 8.6%, with an increase in volatility.
“The potential for extraordinary returns, combined with the significant risks associated with this emerging asset class,
means that even a very small allocation may be sufficient,”
says Ric Edelman, founder of the Digital Assets Council of Financial Professionals, a consultancy for finance professionals, and author of “The Truth About Crypto.”
According to experts, a small amount is enough to significantly improve overall returns without risking considerable losses if the investment in cryptocurrencies significantly declines or drops to zero.
“Designating a portion of your portfolio to invest in cryptocurrencies can be a great way to take advantage of long-term earnings opportunities, knowing that if you don’t succeed, you won’t find yourself losing your entire investment portfolio,”
he explains Callie Stillman, partner at brokerage group Lift Financial.
Which cryptocurrencies should my crypto wallet hold or contain?
Once you have established how much to invest in cryptocurrencies, you must decide which cryptocurrencies to buy and in what quantities.
Edelman suggests organizing your cryptocurrency portfolio in one of the following four ways.
The first variant contains exclusively Bitcoin.
It was the first and largest digital asset among those dominating the cryptocurrency market.
“Institutional investors typically only buy Bitcoin. It may not produce the highest profits, but it will certainly be the last to reach zero,” he says.
As we are witnessing a weakening of Bitcoin’s market dominance, it is more important than ever to diversify your strategy to seize all the opportunities offered by cryptocurrencies,
explains Martin Leinweber, product strategist in the digital asset division of MarketVector Indexes, a specialized company in market analysis.
“Different assets produce significantly different returns and respond similarly to Bitcoin declines,” he says. “Although in the short term, the correlation may be high, in the long term,
Bitcoin has nothing to do with a token linked to crypto gaming such as Axie Infinity or with a token such as Binance Coin (BNB), the native currency of the exchange of the same name.”
Ethereum is the second most largest cryptocurrency by market capitalization.
It is a popular alternative to Bitcoin, which holds a market dominance of 18%.
“There are many who believe that its usefulness in global trade is far greater and that it will, therefore, become increasingly relevant,” says Edelman.
Many other currencies are also based on the Ethereum blockchain.
Another possibility is to create a wallet that contains a mix of Bitcoin and Ethereum.
“They’re like the Coke and Pepsi of the cryptocurrency industry,” she observes.
Together, they hold more than 60% of the crypto market shares.
Edelman suggests a split based on a 50-50 or 60-40 ratio, favoring the preferred currency.
“To do otherwise, the gamble would be enormous,” and “bets are to be avoided since this asset class is already very risky.”
While more robust cryptocurrencies, such as Bitcoin and Ethereum, should make up the most significant portions of your portfolio.
Leinweber suggests investing in smaller proportions of other cryptocurrencies to increase your chances of realizing long-term returns.
Conclusion
This mighty ocean from which the crypto world is generated contains very turbulent waters.
Therefore, you must refrain from jumping into crypto unquestioningly.
Before your first crypto investment, collecting all possible information, getting to know the market in-depth, and making informed decisions backed by facts and data is essential.
It is advisable to use experts in the field of crypto who can accompany you in the first steps or take a crypto course to learn how to trade/invest in an informed and wise way.
There is quite a bit to gain from this extraordinary innovation in the world of finance.
Undoubtedly, today, we see only the tip of the potential iceberg of the crypto world. But, as far as financial investment is concerned,
it is essential to do it properly so as not to lose but to maximize the potential of cryptocurrency positively.
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